Goldman Sachs Projects $220 Billion Inflow Into US Stocks In 2015

Goldman Sachs says U.S. stock markets will remain a popular destination for domestic and international investors in 2015. A January 8th report from Goldman Sachs Portfolio Strategy Research highlights the firm’s projection of $220 billion in net equity inflows in to U.S. stock markets this year.

In the overview of the report, GS analysts Amanda Schneider and colleagues describe their expectations for demand for U.S. stocks in 2015. “We expect corporations will continue to be the largest source of demand for stocks, and we expect net purchases by corporations will total $450 billion or about 2% of public equity cap. We forecast equity inflows from equity-related ETFs ($170 billion), mutual funds ($125 billion), foreign investors ($125 billion), and life insurance ($50 billion). We forecast net outflows from households ($245 billion) and pensions ($175 billion).”

Note on household equity holdings

Schneider et al. note that “flows from the Household sector equal the remainder of net issuance less net purchases from all other categories, so Household outflows are corporate repurchases that cannot be allocated to other holders.”

They also point out that inflows through indirect equity ownership reduce the market impact of direct equity outflows. Moreover, since households own 33% of equities directly, total household ownership is closer to 73% when taken together with 40% indirect ownership through mutual funds, pensions and insurance policy assets.

Details on inflows into US stocks in 2015

The GS report projects $220 billion of potential net U.S. equity inflow in 2015. Corporations will remain the largest buyers of stocks, with net purchases by corporations likely to exceed $450 billion, representing close to 2% of total public equity market cap. Schneider and colleagues anticipate equity inflows from equity-related ETFs of $170 billion, $125 billion from mutual funds, another $125 billion from foreign investors and $50 billion from life insurers. The analysts are projecting forecast net outflows from households of $245 billion and pensions of around $175 billion.

Of note, they expect spending on share buybacks and M&A to have a significant positive impact on the U.S. equity market as they project corporations will buy $450 billion of U.S. equity through buybacks and cash M&A (net of share issuance).

Schneider et al expect to see net equity inflows of $170 billion from mutual funds, ETFs, retirement funds, and life insurance companies in 2015. They point to a continuation of the recent trend of retirement fund assets being moved out of direct equity allocations into indirect equity ownership through mutual funds.

The GS analysts also anticipate that the trend toward global diversification of equity holdings will continue in 2015. They project at least $125 billion of inflows from international investors in 2015, and that U.S. investors will allocate half of their total equity inflows, roughly $250 billion, to foreign equities.